A new GST structure announced by the government will lead to reduced prices for various car models. Petrol cars with engines above 1200cc and diesel cars with engines above 1500cc will now be taxed at 40%. The length of the vehicles should not exceed 4 meters. Consequently, vehicles from manufacturers like Kia, Creta, Hyundai, and Nexon, will see price reductions.
The Goods and Services Tax (GST) Council recently announced the implementation of GST 2.0, causing a stir in the auto sector. Following Prime Minister Narendra Modi’s announcement, the new tax structure has been officially implemented. This is a relief for small car and two-wheeler buyers. It will also offer relief to those purchasing luxury cars and large SUVs. For passenger vehicles (petrol, CNG, LPG) up to 4 meters in length and with a 1200cc engine, there will be savings.
Under the new system, cars up to 4 meters long with engines up to 1200cc (petrol) or 1500cc (diesel) will attract only 18% GST, down from the previous 29-31%. This means that vehicles like Maruti Alto, Tata Punch, and Hyundai Grand i10 will become significantly cheaper.
Cars longer than four meters with petrol engines exceeding 1200cc or diesel engines exceeding 1500cc are now classified as luxury goods, attracting a 40% GST. This includes vehicles like Creta, Kia Seltos, Hyundai Alcazar, Tata Harrier, XUV700 and Innova Hycross.
The government is also using ground clearance as a factor for tax determination. Vehicles exceeding 4 meters in length, with engines above 1500cc and a ground clearance of 170mm or more, will also be subject to a 40% tax.
The reduction in taxes on small cars will directly benefit consumers. A car costing ₹5 lakh could become approximately ₹62,500 cheaper. This decision is advantageous for entry-level buyers, who had been deterred by rising prices. Furthermore, two-wheelers with engines up to 350cc will also see a reduction in taxes from 28% to 18%. This implies that models like Hero Splendor, Honda Activa, and TVS Jupiter will become more affordable.